Thursday, July 18, 2013

What does it cost a business to have its contracts reviewed, redlined, and negotiated?

An “average” sale, purchase, rental, or lease contract takes about an hour or two to thoroughly read and spot issues; a one pager takes less and a multi-document takes more.  Once the attorney is familiar with the subject matter and intent of the parties, the redlining begins.  If the original document was drafted from a one-sided perspective where all of the risk is shifted from the offering party, the edits will be significant.  If the document is generally balanced (where it is a matter of watching out for the occasional slips into greed and selfishness) only a few edits may be necessary. 

Attorneys are taught to “zealously represent their clients.”  To most, this means attempting to shift all the risk, and “while I’m at it, why not slip a few things past the other side.”  The typical response is to take a position at the other extreme with a goal of meeting in the middle.  The redlining process attempts to tip the scales and to find all the “gotchas”.

A seasoned, business-oriented attorney will recognize that client representation means doing business, not negotiating, disputing, and litigating.  He will represent your interests, rather than your position, and offer a balanced agreement to begin with.  In most cases, the other side quickly agrees to consummate the deal because it is such a welcome relief from the many terrible contracts being pushed on businesses.  As an attorney representing the receiving party, a balanced response to a one-sided offer is usually met with the same welcome relief.

Given the range of balance or lack thereof in the offered document, redlining (marking words for deletion and inserting new language) may take two to three hours. 

After the review and redlining, all that information must be communicated to the client so he knows where he stands.  The client needs to make business decisions on which risks to accept and which provisions to negotiate.  (Notice that we are not talking about rejecting the offer.  The business folks want to do business and it is the attorney’s job to facilitate the transaction.)  Communications may take another hour or so depending upon how much detail the client needs.

In some cases I have personally read, redlined, and responded to clients in an hour, but the average business contract seems to take about three to four hours for a complete review.  Add in a review of negotiated terms, and the average attorney time may be five or six hours from start to finish.

Again, it all depends on the document and the parties.  The time invested by the attorney in the review and editing can vary significantly.

Why go through all that?  Why pay an attorney to read your contracts?  Because, it is much less expensive to avoid problems than it is to fix them.  You say, “But this is going to cost me a small fortune!”  Not if you have a working relationship with your attorney.  An experienced business attorney in solo practice in Dallas, TX typically charges $300 to $350 per hour.  However, if he can depend on you for repeat business, he will likely discount the fee by as much as fifty percent.  Give him the equivalent business of full time in-house work and you can probably hire him for a third of his normal hourly fee.

Bottom line on what it costs?  As any good attorney will tell you, “It depends.”  It depends on all the facts.  The fees will vary.  If you want a fixed fee for a contract review you can hire in-house counsel to conduct all of your reviews for a salary.  If you insist on a flat fee for a single contract review, expect to get canned templates and be content with marginal advice.

Was the original question answered to your complete satisfaction?  Probably not, but at least you now have a few reference points from a business oriented attorney with more than thirty years of experience.

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